Do Binding Nominations in Self Managed Superannuation Funds lapse after three years?

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A binding death benefit nomination is a written direction to the trustee that directs them to pay your superannuation benefits to certain dependents, and/or the legal personal representative in directed proportions in the event of your death.

If you don’t have a self managed superannuation fund (SMSF) the law states your binding death benefit nomination will remain valid for three years from the date of signing.

Some advisors will tell you that in your SMSF you are able to make a binding death benefit nomination which remains valid until it is altered or revoked by you. That is, SMSFs do not need to adhere to the rule of updating the binding death benefit nominations every three years.

Other advisors will warn you of risks with making binding death benefit nominations in your SMSF that are not consistent with all of the requirements specified in superannuation law, including the three year lapsing requirement. So, according to them, you do have to renew your nomination every three years.

It’s hard to know who is right. Until Parliament amends the legislation to remove any ambiguity, or there is a case decided directly on this point, the uncertainty remains.

So, how should you deal with the conflicting advice? Your SMSF deed can be amended to provide for members to make a direction about their death benefits that:

  • will not lapse;
  • will bind the SMSF trustee;
  • will take priority over both binding and non-binding nomination forms;
  • will allow the member to terminate the agreement by notice to the trustee or to replace it with another agreement.

If you require specific advice on this topic or would like your SMSF deed amended to reflect the above, please contact us on (02) 4925 2077.

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